All Forum Posts by: Mike Klarman

As a lender I can advise you this: Keep your credit good 700+ and save.  Because as a new investor those will be the two things you can bring to the table: Cash and Credit.  You won't be able to bring experience.

I'm closing a deal now for first time flippers and one of the big reasons the bank is doing the deal is because they showed 200k in a bank account and the guarantor's credit was 750.  Numbers like that make a lender not worry so much.

I personally never heard of 90% LTV on DSCR. I see 80% max on all DSCR we do and you need to be 700+ to get 80%.

Lots of investors use what's called Hard Money.  HMLs will look at your credit score and ask how much capital you have.  If those two things are good then most will work with you.

In this industry, experience matters a lot to a lender for real estate investment.  Just like anything else you want experience.  If you were putting a new roof on your house and the roofer said "Hey, this is my first house."  How confident would you feel?  Not very right?

Now, everybody has to start somewhere.  So someone with no experience needs to come with decent credit - 680+ and more than enough capital to close on the property you have your sights on.  If you need 30k to close let's say and you show a bank 100k in reserves - that makes the bank take a big sigh of relief because they know you can afford the monthly payment no problem.

If you do not have the credit or the capital then a good place to start is with a partnership with someone who is a good candidate for a loan and ride their coattails for a deal or two and then you have your experience and hopefully some capital. At that point, a HML will work with you.

There are lenders who will refi you into a 30 year mortgage.  If Property in SC is worth 750k then in a refi you should be able to pull out nearly 500k - payoff the 272 and you have 278k for you. You can payoff MI too and still be left with 143k.

Don't know how long you've held the properties but most lenders like to see 6 months seasoning, some do 3 and a few places require no seasoning.

You’re talking about a transactional loan.  A loan that allows you to close on debt.  They exist but are rare and hard to get.

For HML, you should expect to bring 10 - 20% of purchase price plus another 2 - 4% of loan amount in fees.

You can look for a transactional loan, also called GAP funding, but they are difficult to come by 

No such thing as 3% on a fix n flip loan.  They are short term loans so the interest rate goes up.  With great experience and decent credit you can find 7.99% without the experience rates jump.  There's spots in the low/mid 8s that is usually for your experience of 3.  Then if you are a 1 or 2 for experience you see rates from 10.5% all the way up to 12%.  Interest only payments.  Refi after 3 months, some do 6 months.  Usually if the same bank does the fix n flip they will refi you in 3 months - given the work is done and you have a lease and can prove receipt of first month's and security deposit.

If you are just starting out, even if someone will agree to lend you money, it will only be 80% LTV toward purchase and damn near 12%+ rate. 2 points and some will charge 3 points or 2.5 points on newbies because of the risk factor.

If you want, I can give you the terms of a loan with your experience doing this property and you will see what your rate would be and what the loan payment would be and what your expected ROI would be.

Just email me.

I can tell you that investors cash out all the time to invest somewhere else.  You can get 75% of 200k lets say.  That's 150 - 20k payoff so you come away with 130k or so.  You have to find out what the Debt Service Coverage Ratio would be given the rent you collect in ratio with the loan payment.  Most banks like to see 1.1 : 1 bare minimum but as an investor you'd love to be much higher.

If you wanna figure out what the loan payment would be for you on your exact property I can do it for you so you can compare that number to the monthly rent.

Don’t be afraid of Hard Money. Think about it.  A house costs 200k.  It has a market rent of 1300.  You’d like to get this asset.  You have 20% to put down but need to borrow 80% to close the deal.  Would you pay 3 - 4% fee to a lender for the ability to acquire this asset?  

So in this scenario you’d borrow 160k.  4% of that is 6,400.  Would you pay a 6400 premium to put this asset in your portfolio? I would.  Your note will be 800 and you’ll collect 1300 each month for rent.  In a year you have your fee to do the deal back.

When you do a fix n flip deal with HML- figure to pay 2points plus closing fees 1200 - 1500.

When doing a purchase or cash out you are going to pay the 1200 - 1500 but u will also choose a rate from the chart. Each rate has a price in points next to it. You can spend anywhere from 1 point all the way to 5 points. The lower the rate the higher the price. The investors who paid 5 points 8 months ago to get 3.5% are laughing all the way to the bank. Your DSCR ratio increases dramatically the lower your interest rate goes. Investors who intend to hold long term buy all the way down. Gives them the lowest note payment which provides a maximum in net profit from rent.

You can do a delayed purchase.  Some Hard Money Lenders do them, we do.  So we do a loan like we are underwriting it from the beginning but you already own it. So you'll get a large portion of the purchase price back and rehab funds for items not completed yet.  This will give you the money to finish and then some. 

Hard Money can help here. you just have to check a few boxes.  First it sounds like this may be a "heavy rehab".  What is the as-is value. If it is a heavy rehab you'll need experience to get a fix n flip loan on it.

What kind if real estate exp do you bring?

What is your credit score?

What kind of capital are you working with?

Any HML will want answers to those questions plus a rehab budget before getting you a term sheet for a fix n flip loan for this property.

I close these types of loans all the time, if you have any specific questions about the process don't hesitate to reach out.